Petroleum product prices may rise significantly at filling stations in the coming weeks due to an increase in global oil prices following Iran’s recent attack on Israel.
The conflict caused oil prices to surge, yesterday, by more than a dollar amid growing concerns that escalating tensions in the Middle East could disrupt crude production.
Oil prices rose again after Iran’s missile attack on Israel, but then pared gains as traders assessed whether the escalating conflict in the Middle East would disrupt energy supplies to the global market.
Brent crude, the international benchmark, climbed as high as $76.14 before falling back to $73.84, up only slightly on the day. United States benchmark West Texas Intermediate was 0.4 per cent higher at $70.12 a barrel.
Traders and analysts warned of potential disruption to energy exports if the violence in the Middle East widened, saying energy infrastructure across a region that accounted for about a third of global oil production could be at risk.
“Iran sits astride the world’s most strategic energy region, oil- and gas-production facilities and transit choke points,” said Bob McNally, founder of Rapidan Energy Group and a former adviser to President George Bush.
“So, when Iran is involved in a shooting war with its neighbours, you have to price in some geopolitical disruption risk, especially when it comes to Israel,” he added.
Israel’s Prime Minister Benjamin Netanyahu vowed to retaliate against Iran after the Islamic Republic reportedly fired 150 ballistic missiles at Israel on Tuesday.
Iran’s direct participation in the conflict, as a member of Organisation of Petroleum Exporting Countries (OPEC), sparks worry over possible disruption to oil supplies. In August, the country’s oil production hit a six-year peak of 3.7 million barrels per day, making up about four per cent of the global supply.
The increasing oil prices present a positive outlook for Nigeria’s fiscal position, indicating higher government revenue and a potential boost in the country’s foreign reserves.
Analysts warn that without some form of government intervention, such as a subsidy, the impact on fuel prices could be severe, adding to the existing inflationary pressures.
However, as the Nigerian National Petroleum Company Limited (NNPCL) aims to fully transition to a cost-reflective petrol market, higher crude oil prices would lead to even higher petrol prices, which could hit Nigerians hard, especially as they are already facing record-high prices exceeding N1,000 per litre in major cities across the country.
Energy Partner at Bloomfield, Dr Ayodele Oni, told The Guardian that when global prices go up, other producing countries generate more revenue; hence, Nigeria should, noting that with increased local refining in Nigeria, the profit used on importing petroleum products could be saved.
He stressed that oil prices usually change based on happenings in producer countries, adding: “Where there is an occurrence likely to lead to the inability of a producer to supply crude to the market, prices are likely to go up.
“Petroleum product prices may increase at the pumps unless there is some form of subsidy from the Federal Government.”
Industry experts are calling on the government to step in and alleviate the burden on consumers.
Iran, an OPEC member that exports about 1.7 million barrels of oil a day, on Tuesday, warned Israel of more “devastating” attacks if it responded to the missile barrage.
Helima Croft, an analyst at RBC Capital Markets and a former analyst for the Central Intelligence Agency (CIA) said oil traders needed to assess whether Israel would retaliate by directly targeting critical Iranian military and economic assets, including energy infrastructure.
Oil prices rallied more than 30 per cent after Israel last launched a ground offensive into Lebanon in 2006 to a then record of $78 a barrel as analysts again feared an all-out war in the Middle East that would disrupt supply.
